This week, The Allocator caught up with Stan Miranda on his new research initiative, the True North Institute. It’s a think tank that aims to tackle the “biggest elephants in the investment committee board room,” supported by a forum of CIOs and other deep thinkers (think: Harvard and Stanford business school professors).

The three biggest long-term issues facing CIOs, according to Miranda: the energy transition, artificial intelligence, and the future of private equity.

“A third of the stock market faces existential risk from the energy transition,” Miranda said. Citing a University of Chicago study, Miranda noted that carbon abatement costing $100 per ton in high emitting sectors would cut profit in half — or eliminate it altogether.

The problem: “The vast majority of asset managers are not factoring the cost of carbon into valuations.” Miranda said TNI is responding by publishing “pretty detailed, nerdy research” on energy transition investment frameworks, with future topics including electric vehicles and long-duration energy storage.

What’s not the solution, according to Miranda: the net-zero policies recently being adopted by European pension funds and other allocators.

“How do you go to net zero in a 10-year period?” he asked. “What do you do? You sell anything with a carbon footprint.”

“We need about $6T investment a year for energy transition,” he added. “Where does that come from? Big public companies that have carbon footprints. If big institutions are selling them over time, that raises the cost of capital, which affects investing in the energy transition. They’re actually impeding the energy transition by starving these companies of capital.”

Once TNI has finished covering the energy transition, Miranda said the think tank will move on to AI, and then the future of private equity. And in the meantime: analyses of prominent groups of institutional investors, like TNI’s debut white paper on alpha disappearing at top endowments. The next cohorts to go under the microscope will be Canadian pensions and sovereign wealth funds.

“Within sovereign wealth funds we’re going to find a wider dispersion of alpha,” Miranda said. “I’m dying to see how their performance stacks up when you properly benchmark them.”

Through these performance analyses, Miranda said he hopes to answer big-picture questions, such as: Is the endowment model really the best model for true long-term investors?

“It’s a pretty simple model if you really distill it — it’s just private equity,” he said. “Is there a better model going forward?”

Amy Whyte, The Allocator

28 June 2024